Treasury released exposure draft legislation in September 2022 to implement an integrity measure announced by the previous Government in the 2016-17 Mid-Year Economic and Fiscal Outlook to make corporate distributions unfrankable where they were funded by capital raising.
This is said to give effect to concerns raised by the ATO in Taxpayer Alert TA 2015/2, applying retrospectively to distributions made on or after 19 December 2016.
The concerns raised in the Taxpayer Alert seem to focus on public companies, particularly those with large institutional superannuation funds as shareholders, such entities deriving large benefits from franking credits.
However, the draft legislation applies more broadly and can apply to small closely-held companies.
In our response to Treasury, we stated it does not support the proposed measure and recommended that, if it were to be adopted, that it be limited to public companies so as not to adversely affect private groups where the same integrity concerns should not exist.
In particular, the draft legislation appears to adversely affect private companies as the integrity rule applies to distributions that are made outside of a company’s normal or regular practice.
This would almost inevitably be the case for almost all dividends paid by private companies (who tend to pay dividends on an ad-hoc or irregular basis).
We also included other recommendations including suggesting that the rule allow the Commissioner to debit the company’s franking account as an alternative to taxing shareholders who received the dividends, so as not to unfairly punish small retail investors.
You can read our submission below.
You can find out more about our advocacy work on the website here.
